Irish house prices up 3% in Dublin in 2015 - up 20%+ in other cities

Irish house prices rose by an average of 8.5% during 2015, according to the latest House Price Report released today by Daft.ie, the property web service. This national average hides a significant difference between Dublin, where prices rose by just 2.7%, and the rest of the country, where the average increase was 13.1%. The national average asking price in the final quarter of 2015 was €204,000, compared to €188,000 a year ago and €164,000 at its lowest point in early 2013. In the other main cities prices rose at least 20%.

The different trends in Dublin and elsewhere marks a turn-around from 2014, when prices rose by 21% in the capital and by 9% elsewhere. The report says that this slowdown in Dublin inflation occurred at a time when inflation in Ireland’s other cities accelerated. Prices rose by an average of 20.7% in Cork in 2015, compared to 14.7% in 2014, and by 19.7% in Galway (compared to 16.3% in 2014).

In Waterford city, inflation has increased significantly to 18.6%, from 4.1% a year ago, while the most dramatic change occurred in Limerick city. A year ago, prices in Limerick city were still falling (by 1.3% year-on-year), but in the last twelve months they have risen by 22.3%. Prices in the city are now back at mid-2012 levels. Elsewhere in the country, inflation has accelerated from 8.8% in 2014 to 12.1% in 2015.

The total stock of properties for sale is now at its lowest point in nearly nine years, with just over 25,000 properties for sale nationwide. A year ago, there were nearly 30,000 properties on the market and the bulk of the reduction comes from outside the five main cities.

Commenting on the figures, author of the Daft.ie Report Ronan Lyons said: “The dramatic slowdown in Dublin house prices in 2015 shows how effective the Central Bank rules have been. This has not been the case elsewhere in the country as house prices are lower relative to incomes and thus the new rules have not been as binding. Some have criticised the new rules as hindering new housing supply but the solution to a lack of supply is not stimulating demand even more. If supply is lacking, the solution to this must be found in reducing construction costs, not in giving borrowers access to potentially dangerous levels of mortgage credit.”

Irish construction costs

There are four main areas where government intervention is needed in the housing market. The first relates to the supply of mortgage credit...this is largely in place now.

The second relates to the supply of private housing: here the government needs to limit construction costs relative to our incomes in the same way mortgage credit is now linked to the real economy.

As 2015 draws to a close, we are beginning to see an understanding on the part of Government that its actions largely determine build costs. The National Competitiveness Council, for example, has recently committed to benchmark the cost of building homes in Dublin and other Irish cities, compared to our peers. This will provide the evidence base for closing the gap between construction costs and the real economy.

In the absence of official figures, it is estimated that a two-bedroom apartment costs roughly €280,000 (excluding land costs), roughly twice the level consistent with the incomes of households that would live in two-bedroom apartments. Thus, requirements regarding basement car parks, lifts, orientation and yes, minimum sizes, are to be welcomed. Remember these are minimums, not targets, and local authorities still have the final say on any particular project.

The third area for government action — supply of public housing — follows directly on from the second. Once you have decided what the minimum cost is for building a home, anyone earning less than this needs a subsidy to give them access to housing. Otherwise, they are being denied their human right to housing. Unfortunately, this is an area where very little change has taken place.

Ultimately, the plethora of current forms of intervention, from rent supplement and HAP to putting families up in hotels, needs to be replaced by a single unified housing-related income top-up. This would then render almost irrelevant the discussion of who is providing the housing – the state or the private sector – and thus prevent the ghettoization of lower-income households.

The final area for government policy relates to land use. In many ways, this is the one area where emergency measures are not required. Land use has been dysfunctional in Ireland for decades, so what's another few years? Sorting out lend rules and the supply of homes, including for low-income households, is enough for the next Government.

But to ensure that decade after decade, land is used well and thus housing is readily available and affordable, a land tax is required.